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US$2B oil spill guarantee requires ExxonMobil to operate in accordance with Permits

May 21, 2024 News

Kaieteur News – The ramping up of oil production in the Stabroek Block by American oil major, ExxonMobil is not covered by the US$2 billion oil spill guarantee provided by the Co-Venturers.

The affiliate company guarantee, seen by this newspaper, makes it explicit “…the Operator is permitted to carry out the activities authorised by the Environmental Permits in accordance with their respective terms and conditions.”

The Environmental Permits granted by the Environmental Protection Agency (EPA) were approved based on the Environmental Impact Assessments (EIAs) conducted by Exxon. These documents outline the company’s plans to produce oil at a specific capacity and assess the damage of an oil spill accordingly. The Floating Production Storage and Offloading (FPSO) vessel is also designed to produce crude oil in accordance with the EIAs.

Exxon currently has three projects operational in the Stabroek Block that are producing above the safe operating limits outlined in the EIAs. Just yesterday, Kaieteur News reported that Attorney-at-Law, Christopher Ram warned that the insurance company can refuse to compensate the country for any damages as it knowingly allowed the operator to breach safe operating limits.

He explained, “In petroleum production, there is a safety margin below the rated productive capacity of a well. Not only is there an increased risk that something can go wrong, but that when it does, the insurance companies will refuse to pay because you have breached the safety limit.” Moreover, Ram cautioned that the oil companies too can refuse to accept responsibility since the Government was not only aware of the breached safe operating limits but condoned and supported it.

ExxonMobil is the operator of the Stabroek Block with a 45% interest, while Hess Guyana Exploration Ltd. holds 30% interest and CNOOC Petroleum Guyana Limited holds 25% interest. Appeal Court Judge, Justice Rishi Persaud had ordered ExxonMobil Guyana to lodge a US$2B parent and/or affiliate company guarantee as a condition to a stay of execution granted on a lower court’s order. That order, originally issued by High Court Judge, Justice Sandil Kissoon called for an unlimited parent company guarantee to be provided to the Environmental Protection Agency (EPA) by June 10 or the Liza Phase One Project Permit would be suspended.

Consequently, the Guarantee and Indemnity Agreement was entered into on June 9, 2023 by the Executive Director of the EPA, representing the Government of Guyana Jamestown Insurance Company Limited (Guarantor) for Hess.

Meanwhile, CNOOC Limited, a company organized in Hong Kong and Exxon Equity Holding Company is the Guarantor for CNOOC and Exxon, respectively. Each partner has a share in the US$2B Guarantee relative to its participating interest in the Petroleum Agreement.  According to the document which features identical provisions for each of the partners, “In the event that EEPGL (or ExxonMobil Guyana) fails to satisfy EEPGL’s Share of Environmental Obligations in accordance with applicable Laws of Guyana (a “Default”), the Guarantor hereby irrevocably and unconditionally guarantees the full, complete and punctual payment of EEPGL’s Share of Environmental Obligations, including, without limitation, payment to the Beneficiary, in accordance with this Guarantee and Indemnity Agreement, of the aggregate unpaid amount necessary to satisfy EEPGL’s Share of unsatisfied Environmental Obligations in accordance with applicable Laws of Guyana, collectively up to a maximum amount calculated as (a) EEPGL’s Share multiplied by (b) two billion dollars United States’ currency (USD $2.0 billion) (the “Maximum Amount”).”

Despite ordering the US$2B guarantee, Justice of Appeal Rishi Persaud ruled in February this year that the Court of Appeal had no jurisdiction to summon the EPA to produce evidence that ExxonMobil Guyana lodged the oil spill guarantee. The summons to see the US$2B [interim] guarantee was filed by Senior Counsel, Seenath Jairam in association with Attorneys Ms. Melinda Janki and Mrs. Abiola Wong-Innis on behalf of public interest litigants, Godfrey Whyte and Frederick Collins. The Guarantee and Indemnity Agreement was later Gazetted by the government on May 11, 2024.

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